Despite vehement denials and warnings from Rogers spokespeople, I have it on slightly better authority from an unnameable closer-to-the-source Rogers employee that the date for launching the Rogers iPhone in Canada will land in December — making those overnight lineups outside the Apple Store so much more pleasant!

It is, however, unclear to me whether this will be the impotent 2.5G iPhone a la AT&T, or the kick-ass 3G iPhone rumoured to be teeing up to launch in Europe in October. Launching a 3G iPhone in Canada that is rather unlocked would be great for T-Mobile and other U.S. GSM carriers, such as they are, because it’d allow people to hook up an iPhone to existing GSM accounts with other service providers, despite AT&T‘s rumoured two-year exclusivity lockout.

What most of the hysterical journalists I have read in the past few weeks have overlooked is that the iPhone is a service, and not just a device: there are provisioning systems, security standards, and feature interactions (specifically, the visual voicemail tool is not exactly out-of-the-box wireless voicemail technology) which are client-server and which require service providers to deploy network equipment to coincide with the iPhone launch. Some carriers’ architectures will lend themselves better to this than others. So it’s not simply a case of getting the handsets, and some carriers are more stuffy than others about third-party hardware and protocols riding in their network.

In this sense, iPhone is interesting not just because it’s a cool, game-changing device .. but moreso because it’s the first fundamentally new network approach to break down the bunker doors to the wireless carriers metro switching networks since RIM. And as Richard McManus points out, it’s a platform that’s carrying a lot more applications than just email.

In the meantime, insofar as wireless device crazes go, the iPhone has big shoes to fill in outselling the RAZR.

It’s scary to think that sophisticated 3G mobile systems may depend for their survival on Hello Kitty, that cutesy Japanese pink cat with whiskers but no mouth. But that’s what it might come down to.

Not long ago, a 3G content developer noted that backgrounds with the Hello Kitty design, which serves the same purpose as the Western world’s yellow smiley face, were one of the most popular downloads over i-mode, the mobile multimedia service offered by Japan’s NTT Docomo.

Such simple things are also trés chic in Taiwan. Sixty percent of the traffic on the proprietary i-mode service is for ring tones, background wallpaper like Hello Kitty and real-time news, according to the top executive at KG Telecom.

KGT, a relatively small operator in Taiwan, decided earlier this year to forgo its bid for a 3G license because it saw too many obstacles, such as a lack of applications, to the generation of cash in the short term. Instead, KGT turned to NTT Docomo because it offered a tip-to-toe solution. So far, Taiwan is one of only two export destinations for i-mode.

For the mobile industry, Taiwan and Japan represent interesting case studies that offer evidence of the services consumers want. Though such evidence is far from conclusive, network operators, equipment operators, equipment vendors, handset providers and content developers that are still uncertain about how to make 3G successful might well take note.

But among industry insiders, it seems, the only certainty is that data services — which require such things as licenses and network upgrades — also entail greater expenses, untested applications and a new round of experimentation with handsets and how they should be used. Of course a few operators are averaging more money per user, but that tends to be on more proprietary systems like those in Japan.

Natural communication?

The slowdown in the general telecom market also brought a sense of urgency, if not quite desperation, to those who gathered in Taipei for IEEE’s recent GlobeCom 2002. Operators, handset makers and content developers want to see data services enjoy the kind of success they are having in Japan and Korea.

Of the world’s 70 million mobile-data users, 80 percent are in Japan, noted Kurt Hellstrom, president of troubled mobile-phone giant Ericsson. “We are just starting to see the growth in mobile data. It starts with camera phones and sending pictures and one day this will be a natural way of communicating with each other,” Hellstrom said. “Nobody on the inside has ever expected that this [data services] technology shift would take place overnight.”

Yet it will happen a bit more quickly if the industry can pull itself together, observers said, and overcome political divisiveness on such issues as interfaces, protocols, formats and content billing.

For instance, 69 operators, mostly of General Packet Radio Service (GPRS) networks, have launched multimedia messaging services (MMS) based on 3GPP standards, said J.T. Bergqvist, executive vice president of Nokia Networks. In terms of network interoperability, he said, the technical issues have largely been solved, opening the service to a potential base of 300 million users. Now “it is a question of [business] agreements between the operators” that will slow things down.

And for 3G, Bergqvist said, “We as an industry have not, by and large, been able to create something that is transportable from one operator to another. We have not created something yet where two operator systems would be interoperable. We have not created open interfaces in those data-oriented systems, particularly in Japan and Korea.”

Such bottlenecks are, in some cases, causing frustrated operators to look for a shortcut to data services. That’s what happened with Taiwan’s KGT, which finally opted to purchase i-mode.

In December 1999 KGT was the first to launch the Wireless Application Protocol in Taiwan. Then in September 2000 it introduced GPRS, which was followed in August 2001 by an integrated GPRS over WAP portal called iGoGo. KGT launched i-mode in June 2002.

Executives at KGT believe the WAP protocol failed because it was primarily developed by a voice service community to help fill the gap of mobile data, making it a subset of voice.

WAP started as a value-added service and never took center stage where wireless data should have been, said Leslie Koo, chairman and chief executive officer of KGT. Handset consistency was an issue because each WAP handset had different versions of different browsers from different software vendors, so it was pretty much impossible for a carrier to provide consistent service to multiple handsets with various interfaces, Koo said.

“Sometimes your e-mail would work with Nokia handsets, but not with Ericsson’s. And once you fine-tuned it to Ericsson’s, then Motorola’s had a bug. So you are caught constantly running around and finding answers from no one because your vendor will tell you, ‘No, that’s not my problem, it’s the handsets.’ Then the handset manufacturer will tell you, ‘No, it’s not the handsets, it’s the browser.’ And the browser manufacturer will tell you, ‘Sorry, that’s an outdated version of the browser, which is no longer supported.’ ”

Meanwhile, customer complaints are rolling in, he said. This leaves the carrier wondering whether it should be a wireless-access provider, a portal provider or a service integrator of “all these very complex vendor solutions and software solutions and content platforms. It is almost impossible to manage. No wonder WAP never took off,” Koo said.

For better or worse, with i-mode, at least there are consistent standards for technical applications and business execution.

“These are not the best standards in the world, but they are standards that all i-mode service providers will follow,” he said. “They not only include the content format but also the specs to handset manufacturers. So this is the first time that the carriers can ask the handset manufacturers and also the system integrators to provide an end-to-end solution that will meet the service requirements of delivering a consistent, high-quality service.”

Common business sense suggests that the industry would learn from such a solution. So far, however, that remains questionable. “In the past, the industry, perhaps, has been guilty of just selling hardware. Glorious IDs,” said Brian Holmes, a product-marketing director for Motorola (China) Electronics.

“But in this future world I speak to, design no longer specifically speaks to just hardware. It is about understanding consumer experiences and how they want to use the product, and actually doing application design specifically around the mobile environment and targeted at specific consumers. If we don’t do that, as an industry we will disappoint.”

Nearly commonplace

Asia, in general, has had the best rollout of data services so far. In Japan and Korea, networks and, more importantly, services are nearly commonplace. And mobile-data networks are rolling out in places like Taiwan, Singapore and Hong Kong, where mobile penetration (measured by SIM card subscriptions) is nearly at or above 100 percent, which is far above many Western countries.

Even in Asia, however, some network operators think that trumpeted promises of video-streaming services won’t, in reality, pay the bills — at least not yet. In certain markets based on highly proprietary systems, such as i-mode in Japan, there could be some exceptions, of course.

During a visit to Taiwan, NTT Docomo president and chief executive officer Keiji Tachikawa told IEEE Communication Society members that in Japan even cats and dogs will eventually participate in mobile chic.

Is such a scenario farfetched? Well, in a country that created the robotic dog, Aibo, it doesn’t seem so crazy to imagine that man’s best friend, if lost, would be found with the help of a GPS device that tracks an RF chip implanted in its collar. “The potential demand for mobile services is enormous if services could be applied to objects rather than people,” Tachikawa said.

But given the realities of today’s telecom slowdown, and the sensitive nature of the rollout stage for data services, where end users’ first impressions are long-lasting, many operators will not assume that Japan’s experience transfers easily.

If operators are to learn anything from Japan, it is that, to pay the bills, they should focus on the small stuff, such as Hello Kitty multimedia messages, rather than on the promise of video teleconferencing. “Trying to do full, 30-frame-per-second video, for example, on a GPRS network is probably not in the cards given the current level of compression technology,” said Motorola’s Holmes.

Yet, as the future shapes up video teleconferencing might actually be close to realization. Operators as well as handset providers and network equipment vendors are cozying up to the notion that IEEE 802.11 access should be a part of 3G. Ericsson’s Hellstrom called it a “complementary” technology. Bell Labs fellow Qi Bi said, “Incorporating Wi-Fi into the third-generation system is an important part of the system design. 3G can provide ubiquitous coverage and Wi-Fi can cover the hot spots.”

NTT Docomo’s Tachikawa also factored Wi-Fi into his company’s 4G plans. During his keynote to GlobeCom, Tachikawa revealed a few details of what NTT Docomo thinks 4G networks should do and how they will look. “We are thinking of using a cellular system because we plan to build it by extending the coverage and mobility of the 3G system,” he said. “On the other hand, in low-mobility areas, such as indoors and in hot spots, it may be necessary to introduce a solution that incorporates wireless LAN-type technology for data transmission at even higher speed.”

Fourth-generation systems should offer a peak speed of more than 100 Mbits per second in stationary mode, Tachikawa said, with an average of 20 Mbits/s when traveling. Network capacity should be at least 10 times that of 3G systems. In practical terms, that would quicken the download time of a 10-Mbyte file to one second on 4G, from 200 seconds on 3G, he said, enabling high-definition video to stream to phones and create a virtual-reality experience on high-resolution handset screens.

In the meantime, it’s a good bet that operators will focus on early returns on investment, no matter how unglamorous the application might be. Since operators are used to a more-traditional role as connectivity providers rather than content providers — let alone creators — they will likely look to MMS as a workhorse revenue provider for 2.5G/3G data services, just as SMS is for 2G data services.

Many will be conservative, suggested Herman Rao, vice president of service network and enabling technologies for Taiwan’s FarEastone Telecommunications Co. Ltd. “We know how to make money on connectivity, but we do not yet know how to make money on content. So the challenge for operators is on the content business and services model.”

Rao, too, suspects that such simple applications as location-based maps, entertainment services and news will be the key to early 3G success. “Bandwidth is not as critical as equipment vendors try to make us believe,” he said. “Video streaming won’t be that important.”

So like it or not, Hello Kitty and smiley faces may be the way forward. And that idea might not be such a stretch, since NTT Docomo is already moving on to enabling cats and dogs.

Copyright 2002 © CMP Media, LLC

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By Russ Mitchell

This article was originally published on SmartMoney Select on 8/22/02. NOT EVEN A PROMISING pedigree was enough to spare Agere Systems (NYSE:AGR.A – News) the indignities of the telecom meltdown.

Last week, the Lucent Technologies (NYSE:LU – News) spinoff unveiled plans to dump its optoelectronics business, close almost all of its manufacturing plants and lay off 4,000 — a third of its work force. The decision, though drastic, was all but unavoidable in light of the state of the industry and the health of the broader economy. What’s curious, though, has been the stock market’s reaction to it all.

Agere’s shares have been hovering between $1.50 and $1.70, off a 52-week high of $6.30. The price blipped up on the announcement, but only a tad. In other words, the market seems to be saying the news is practically neutral; that huge layoffs, plant shutdowns and a dramatic shift in strategy will leave the company worth about what it was worth before the announcement.

Clearly, that’s absurd. More likely, investors want to believe in Agere, but they don’t trust it yet. And who can blame them? Until early 2001, Agere was the microelectronics group at Lucent. Lucent spun it off because Lucent’s finances were in deep crud, just as AT&T (NYSE:T – News) spun off Lucent in 1996 because AT&T was in trouble.

Agere, for its part, came away with a potentially strong chip business and great technology — its roots go back to Bell Laboratories, and Agere is blessed with 6,000 patented technologies covering optics, integrated circuits and semiconductor manufacturing processes and technology.

But it also came away with horribly bloated operations. In the spring of 2001, Agere had 18,500 employees; by the end of next year that number should be down to 7,200. Lucent, in desperate straits, stuck Agere’s managers and shareholders with $2.5 billion in debt. Lucent also passed on a legacy of strategic mismanagement, which left the company saddled with semiconductor fabrication plants (known as fabs) that companies like Agere can no longer afford.

Credit Agere management for stripping the company down to its essentials. It’s closing all but one of its fabs, turning instead to contract fabrication outfits in Asia, as do most midsize and smaller chip companies. That means not only capital savings, but also savings of $100 million in annual process R&D costs. The optoelectronics business that it’s exiting — chiplike devices that route traffic on long-haul fiber-optic networks — may have brought Agere profits in the future, but it’s a business that may not recover for years. Agere can direct that investment elsewhere.

So where’s the focus going forward? Three chip markets, from fastest to slowest growing:

Wireless networks, including the fast-growing technology known as 802.11 (a.k.a. WiFi), and cellular telephones. Agere is a close No. 2 behind Intersil (NASDAQ:ISIL – News) in WiFi. Among its cell-phone customers is Samsung, which uses Agere chips in its new phones for 2.5G networks. Agere is also a major player in the flourishing cell-phone market in China.

High-density storage. Agere makes three chips essential to storage: One amplifies the signals picked up by the read head in the hard drive; another converts those amplified signals to digital; and a third controls the hard-drive motor. New chips combine the last two functions. Hard drives are commodities, but the chips that control them are not. Agere counts the four largest hard-drive manufacturers as major customers.

Multiservice network solutions. Marketing verbiage for chips that process data in networks. Customers here include Cisco (NASDAQ:CSCO – News), Riverstone (NASDAQ:RSTN – News) and Huawei, also known as the “Chinese Cisco.”

Clearly, Agere’s prospects depend on a capital-spending recovery. The company will lose money this year. But Greg Waters, senior vice president of strategy and business development at Agere, says the company is committed to paring costs to the point where it could break even on current revenues — about $500 million a quarter. “Even if the economy doesn’t improve, even if our business doesn’t improve, our cost structure will allow us to make money,” he says.

Not much money, of course, but Waters says that after breaking even, as much as 70% of new revenues could fall right down to the bottom line. In other words, when the economy turns around, Agere earnings will be positioned to take off, and midyear 2002 would prove to have been a great time to get into the stock.

Of course Agere, which is ranked as the No. 1 vendor of communications chips by Gartner, must execute — particularly with companies like Intel (NASDAQ:INTC – News) paying more attention to those very same communications chips. And Agere’s Lucent legacy gives cause for pause. But Waters, who came from Texas Instruments (NYSE:TXN – News) three years ago, says two-thirds of top management joined the company within the past two years. Another good sign.

Adding his two billion cents to the stock-options debate this week, Bill Gates said expensing options would have little negative effect on innovation.

In a recent column I argued that forcing young start-up companies to expense options would weigh down their net income, extend their periods of losses, make it harder for them to raise capital and, in the end, stifle innovation. I’m hardly the only one making that argument.

If Gates means that expensing options won’t slow innovation at huge, established companies such as Microsoft (NASDAQ:MSFT – News), he’s probably right. But if smaller, more innovative companies find it tougher to raise money, then it lowers the odds that new breakthrough technologies will emerge to challenge the giants…like Microsoft.

Russ Mitchell is a veteran technology journalist based in San Francisco.

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